India Reportedly Asks State Refiners to Stop Buying Dollar in Spot Market to Curb Rupee Depreciation

The Indian rupee fell around 10 percent against the US dollar this year with the currency touching its lowest level of 81.90 this week. With rising crude prices, Indian refiners have spent huge amounts on imports, resulting in the ballooning trade deficit.

The Reserve Bank of India has asked state-run refiners to reduce their dependency on the spot market for dollars to pay for what they're buying, Reuters reported Friday.

Using a special credit line instead of spot buying was reportedly the advice to curb the Indian rupee's depreciation against the dollar.

“The Reserve Bank of India has ensured $9Bln has been made available at overseas branches of some Indian banks for the country's three state-run refiners to tap,” sources familiar with the matter told the news organization.

India's state-run refiners pay 30 percent of the country’s monthly oil bill from their overseas accounts. Commerce ministry data shows that Indian refiners spent $17.7Bln in August.

The Reserve Bank of India's governor Shaktikanta Das said on Friday that the Indian average crude oil price was around $104 per barrel in the first half of this financial year, ending March 2023.

“We are now assuming it will be $100 per barrel in the second half of this year,” Das added.

The governor emphasized that the central bank is not intervening massively in the market as had been speculated by the media as foreign exchange reserves decline.

“First, the rupee is a freely floating currency, and its exchange rate is market-determined. Second, the RBI does not have any fixed exchange rate in mind. It intervenes in the market to curb excessive volatility and anchor expectations,” Das said.

India’s foreign exchange reserve had fallen to $537.5Bln as of 23 September 2022, down from more than $635Bln at the beginning of this year.

“About 67 percent of the decline in reserves during the present financial year is because of valuation changes arising from an appreciating US dollar and higher US bond yields,” the governor said.